Economics

Argentina seeks emergency financing deal with IMF as peso falls

a currency exchange store in argentina

A man looks at a store's currency exchange board in Buenos Aires, Argentina, Sept. 5, 2018.

Credit:

Marcos Brindicci/Reuters

Argentina's peso lost nearly 1 percent against the US dollar early on Wednesday as government officials met with the International Monetary Fund in Washington to try to secure early cash disbursements under an emergency financing deal.

The peso opened down 0.89 percent at 39.4 to the dollar despite Economy Minister Nicolas Dujovne saying in Washington on Tuesday evening that he hoped to clinch a deal with the IMF within a month.

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Argentine officials held a second day of talks with the Fund aimed at strengthening a $50 billion standby agreement. But there was little optimism in Argentina that the government has the political will to implement unpopular spending cuts expected to be part of a revamped IMF deal.

"Skepticism is dominant in the local market," said Esteban Goyheneix, head of Buenos Aires market brokerage Neix.

The currency lost 5.25 percent of its value against the dollar during the first two days of this week, despite central bank interventions in the foreign exchange market aimed a stabilizing the peso. The bank has sold more than $14 billion of reserves this year, $458 million on Monday and Tuesday alone.

Economists expect Argentina's economy to shrink 1.9 percent this year compared to a previously estimated 0.3 percent contraction, according to a central bank poll published on Tuesday. Inflation in 2018 is now seen at 40.3 percent, versus 31.8 percent in the previous monthly poll.

Dujovne unveiled new fiscal measures on Monday, with the aim of regaining the market's confidence in part by reducing next year's primary fiscal deficit target to zero from the 1.3 percent that had been included in the June IMF deal.

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It will not be politically easy. Buenos Aires streets are regularly blocked by anti-austerity marches. When the government introduced a bill to reduce pension benefits late last year protesters rushed Congress and had to be held off with water cannons and tear gas.

Argentina is struggling to break free from the cyclical crises that have hammered the country every decade over the last 60 years. A financial meltdown in 2002 tossed millions of middle-class Argentines into poverty, with many blaming IMF's orthodox economic policies for setting the stage for the crisis.

Hugh Bronstein and Jorge Otaola of Reuters reported from Buenos Aires.

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